Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc. Relating to Transmission of Proxy and Other Shareholder Communication Material.

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38058; File No. SR-NYSE-96-36]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the New York Stock Exchange, Inc. Relating to Transmission of

Proxy and Other Shareholder Communication Material.

December 18, 1996.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on

December 6, 1996, the New York Stock Exchange, Inc. (``NYSE'' or

``Exchange'') filed with the Securities and Exchange Commission

(``Commission'') the proposed rule change as described in Items, I, II,

and III below, which Items have been prepared by the self-regulatory

organization. The Commission is publishing this notice to solicit

comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The Exchange is proposing changes to Rules 451 and 465 (the

``Rules'') on a three-year pilot basis. The Rules establish guidelines

for the reimbursement of expenses by issuers to NYSE member

organizations for the processing of proxy materials and other issuer

communications with respect to security holders whose securities are

held in street name. The text of the proposed rule change is available

at the Exchange or the Commission.

[[Page 68083]]

II. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the self-regulatory organization

included statements concerning the purpose of and basis for the

proposed rule change and discussed any comments it received on the

proposed rule change. The text of these statements may be examined at

the places specified in Items IV below. The self-regulatory

organization has prepared summaries, set forth in Sections A, B, and C

below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

1. Purpose

Background to the Proposed Rule Change

Exchange member organization holding securities in street name

solicit proxies and deliver communications to and from beneficial

owners of securities on behalf of issuers.\1\ For this service, issuers

reimburse the member organizations for all out-of-pocket expenses,

reasonable clerical expenses, postage and other expenses incurred in a

particular circulation. The Rules set guidelines for the amount of the

reimbursement.

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\1\ Street ownership encompasses shares purchased through a

broker or bank (referred to as a nominee). The shares are then

registered in the name of that nominee, or in the nominee name of a

depository such as The Depository Trust Company (``DTC''). Recent

analysis indicates that, on average, approximately 70 to 80 percent

of all outstanding shares are held in street name.

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While member organizations initially handled proxy processing

internally, beginning in the late 1960's and continuing to the present,

firms have increasingly used outside contractors for these types of

services. In particular, a firm will contract with a service bureau,

such as Automatic Data Processing (``ADP''), for the solicitation of

proxy voting instructions, and the distribution of reports to

shareholders.\2\ However, the identity of the soliciting broker remains

on all communications.

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\2\ The Commission notes that ADP is currently the only

intermediary offering these services to broker-dealers.

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Since the level of reimbursement was last reviewed in 1986, the

Exchange has found that proxy solicitation and report distribution

costs have increased, due in large part to general cost increases in

the economy. Postage itself has doubled since 1979. Brokers pass these

costs to the issuers. Aggregate costs also have increased due to a

substantial increase in the number of beneficial owners, which results

from increased participation of individual investors in the rising

securities market.

While the number of individual investors has increased, the

percentage of holdings of securities through institutional investors,

mutual funds, pension and savings plans also has increased. Such

institutions have an obligation, or, in some cases, a statutory duty,

to vote the shares being held. Institutions have developed a variety of

mechanisms to vote their shares in conformity with their own internal

policies and governing regulations. While these procedures require

time, many institutional investors have difficulty voting on a timely

basis during the spring proxy season. Over 40 percent of all annual

meetings occur within a few weeks. Some large institutions tend to vote

very close to the meeting date, particularly during the proxy season,

due to the immense increase in paperwork.

The Exchange has determined that, in addition to the changing stock

ownership patterns, stock holdings continue to migrate from registered

to street or nominee ownership. Street name holdings are concentrated

with approximately 1,000 nominees, and the Exchange believes that an

efficient infrastructure is necessary to coordinate these nominees and

their customers. Service bureaus, as contract agents of the nominees,

build and maintain such systems. Nominees and their agents also have

developed communications systems for obtaining shareholder votes

electronically rather than through a physical proxy. To accommodate

this, the Exchange recently amended its rules to permit telephone

voting. However, the Exchange has found that the current fee structure

does not recognize the value that these systems provide to issuers in

reducing the costs of coordination and solicitation.

Despite the progress that has been made in the distribution and

proxy solicitation process, issuers often express their belief that

mailing fees are unnecessarily high and that the procedures are not

responsive to the needs of the issuers. In this regard, unit fees for

large issuers are the same as those for small issuers, ignoring

economies of scale. Two matters are of particular concern to issuers:

whether they will have a quorum at their meeting and whether large

blocks of votes will be received relatively close to the meeting date.

In many cases, addressing these concerns has led to significantly

increased solicitation costs for issuers. At the same time, the

interests of institutions in having their voted counted in the

tabulation must also be recognized, and any changes must preserve the

rights of all shareholders in the corporate suffrage process.

Limitations of the Current Fee Structure

While there have been changes in the nature of securities holdings

and enhancements in technology, the proxy fee structure generally has

been unchanged since the Rules were first adopted in 1938. In the

Exchange's view, the current structure does not provide incentives for

nominees and other intermediaries to use the most current and efficient

technology. The Exchange believes that this structure needs to be

reconsidered and that there should be incentives for market-driven

innovations, such a electronic proxy services, touch-tone voting, and

electronic vote reporting.

Funding to operate these communication and voting systems presently

comes from the unit mailing fees that issuers pay under the NYSE

reimbursement guidelines. A decrease in fees could reduce the use of

these systems, which are increasingly being relied upon in the voting

process. Without financial incentives, it is unlikely that new cost-

reducing technology will be implemented. In addition, there is no

incentive for brokers and intermediaries to reduce the mailing of

printed material. Paper, printing and postage generally represent

between 80 and 90 percent of the cost of the average proxy mailing. By

the development and use of new technologies and electronic

distribution, these costs can be reduced.

Finally, the Rules also do not recognize the cost of coordinating

multiple nominees and the value that consolidating material

distribution and vote collection provides to issuers. These services,

which are not expressly required by any regulation, include: (i)

sending a single search card for multiple nominees; (ii) coordinating

multiple nominees to generate a single material request for each

issuer; (iii) delivering material to a single place for multiple

nominees; (iv) sorting bulk mail across multiple nominees for maximum

discounts; (v) daily reporting of votes for multiple broker and bank

nominees; and (vi) consolidating multiple nominees into a single

invoice.

The Exchange's Proposal

The proposed rule change would amend the Rules to reduce the

suggested rate of reimbursement from 60 cents or 70 cents to 55 cents

for each set of proxy material, i.e., proxy statement, form of proxy

and

[[Page 68084]]

annual report, when mailed as a unit. The present distinction between

proposals that require beneficial instructions and those that do not

would be eliminated. According to the Exchange, this will produce

substantial savings for all issuers. Further, the rate for mailing

other reports, primarily quarterly reports, would be reduced from

20 cents to 15 cents. The rate of reminder notices would remain at

40 cents unless a proxy fight is involved. The special fee of 60 cents

for mailing only to shareholders who have not voted would be

eliminated. These are the first reduction in the basic rates since the

Rules were adopted in 1938.

The proposal treats reimbursement for mailings during proxy fights

differently. These contests require significant efforts by all

participants in the proxy process and can occur under difficult

circumstances. The time for distribution is short and requires maximum

effort. Thus, the proposal includes a new fee of $1 for each set of

proxy materials mailed.

A significant aspect of the proposed rule change is a new $20 fee

per nominee. To earn this fee, the intermediary will need to provide

coordination for a series of functions across a multitude of nominees

(brokers, banks).\3\ In effect, this fee compensates an intermediary

for all the services it provides and upon which issuers and

institutions have come to rely, such as:\4\

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\3\ ``Nominees'' are those names that appear on either the list

of record shareholders or on an omnibus proxy sent to the issuer on

the record date by a depository, but who are, in fact, acting for

someone else. In practice, they are self-clearing brokers, banks, or

other financial institutions participating in DTC or some other

depository.

\4\ As noted above, ADP is the only intermediary that currently

offers these services to broker-dealers.

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Searches: Rule 14a-13 under the Act requires an issuer to

inquire of each record holder to determine the number of beneficial

owners holding shares through nominees. If an intermediary coordinates

multiple nominees, the issuer incurs only the expense of performing one

``search'' for all the nominees, saving the issuer significant

expenses.

Search responses: Nominees must respond to an issuer's

search request within seven business days of receipt. This process

often is complicated since there are multiple levels of entities. In

that case, an intermediary can consolidate responses (in some cases,

responses of over 1,000 entities), this saving administrative expenses

for issuers and increasing the accuracy of ordering material.

Delivering materials: Providing material to hundreds of

nominees requires an issuer to sort and ship a parcel to each nominee.

If this task is not done by the issuer, it must be done by a proxy

solicitor or some other vendor. Since an issuer pays a fee and a

freight bill for each of these shipments, and intermediary can save

issuers a significant expense if it can make one material delivery for

hundreds of nominees.

Use of bulk mail: For issuers who use bulk mail, a

significant amount of the savings realized today would not occur unless

intermediaries continue to combine nominees. Issuers reimburse nominees

for postage, and bulk postage rates are available only for large

shipments. Unless consolidated, the majority of nominees would not be

able to qualify individual small shipments for bulk discounts.

Preliminary voting information: To help issuers judge

whether they have a quorum, many brokers currently report a

discretionary vote ten or fifteen days before a meeting in accordance

with NYSE Rule 451(b)(1), and again at the time of the meeting. As the

proxy process has evolved, large intermediaries voluntarily have

provided daily voting updates for issuers. ADP now sends daily

consolidated vote reports 15 or 10 days before a meeting, and then

every business day until the night before the meeting. Without this

service, many issuers would need to hire a proxy solicitor to obtain

voting estimates. Obtaining the vote from a single source for hundreds

of nominees can save the issuer substantial expense, and daily voting

updates provide comfort to the issuer as the meeting date approaches.

The Exchange has determined that this coordination fee is

consistent with current Exchange rules that authorize the payment of a

coordination fee for agents that coordinate providing information

regarding non-objecting beneficial owners (``NOBOs''). \5\ The impact

of the nominee fee will vary with the issuer and the nature of its

shareholders. However, the Exchange has observed that smaller issuers

tend to have fewer nominee holders. The Exchange estimates that the

smallest 4,000 U.S. issuers would pay, on average, an intermediary

nominee coordination fee of only $800. This will be partially offset by

the lower basic rate and lower expense.

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\5\ See Exchange Rule 451.92

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To clarify the policy with respect to out-of-pocket expenses, the

proposed rule provides for reimbursement only of actual costs, such as:

outgoing postage (plus third class sorting fee); envelopes and business

reply envelopes; and custom printing of envelopes and ballots. The

business reply postage would be billed at the Business Reply Mailing

Accounting System (BRMAS) rate. Additional savings are possible by

sorting mail to obtain postal discounts, as well as through other

efforts undertaken by nominees or their agents to reduce issuers'

postage expenses. These savings could be shared between the issuer and

the processor.

The Exchange also is prosing a new incentive fee to compensate

member organizations for eliminating the need to send materials in

paper form. This will encourage member organizations to apply

technology to sort materials in a way that multiple proxy instruction

forms are included in a single envelope, with a single set of materials

to be mailed to the same household. The Rules address this area through

the concept of ``householding.'' A member firm or intermediary could

earn this paper elimination fee by distributing multiple proxy

instruction forms electronically or be distributing all material to a

household electronically. An additional fee of 50 cents (10 cents for a

quarter report) is proposed for each set of material that is not

mailed.

The Exchange provides the following examples of the cost savings

that are possible by eliminating mailings:

1. A person having three accounts--such as an individual account,

an ``IRA'' retirement account, and a trust account--could receive one

set of materials through ``householding.'' The cost comparison is:

------------------------------------------------------------------------

Without Householding

Unit cost householding (3 accounts)

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Proxy Fee........................ $.55 $1.65 $1.65

Householding Fee................. .50 0 1.00

Annual Report & Proxy Statement.. 2.00 6.00 2.00

(Estimated, cost will vary):

Bulk Rate........................ .65 1.95 .65

[[Page 68085]]

Outgoing Postage

Envelopes........................ .08 .24 .08

Return Postage................... .34 1.02 .34

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Total...................... ......... $10.86 $5.72

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As this example makes clear, the potential savings are greatest in

the areas of postage and printing, and these savings will occur even in

the first year. Also note that this example assumes the use of bulk

rate mailings. The savings would be greater for issuers using first

class postage.

2. Savings from elimination of mailings also are possible through

use of the Internet. Even for an individual with only one account, the

savings can be shown as follows:

------------------------------------------------------------------------

Mail Electronic

Unit cost return return

------------------------------------------------------------------------

Proxy Fee............................. $.55 $.55 $.55

Householding Fee...................... .50 0 .50

Annual Report & Proxy Statement....... 2.00 2.00 0

(Estimated, cost will vary):

Outgoing Postage...................... .65 .65 0

Envelopes............................. .08 .08 0

Return Postage........................ .34 .34 0

----------------------

Total........................... ......... $3.62 $1.05

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In this example, the Internet cost is paid by the user. Investors

who request to receive information electronically simply would receive

an ``e-mail'' message indicating that the annual report and proxy are

available. The Exchange believes that such use of the Internet would be

consistent with Commission policies in this area.\6\

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\6\ See Securities Act Release No. 7233 (Oct. 6, 1995).

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Finally, as to the manner in which the fees are collected, the

Exchange notes that ADP is the data processor for many of the brokerage

firms that are Exchange members. These firms subcontract the data

processing functions of the proxy solicitation process to ADP, but

retain all the obligations to comply with the relevant Exchange rules.

As a general matter, the firms subcontract for these services at less

than the full fee that the issuer pays. The firms also maintain some

staff in a proxy department to handle such tasks as balancing

depository positions on record date, changing investor records,

answering inquiries and performing other work not covered by the

subcontract.

The firm's systems department also needs to maintain proxy-related

programs--including programs for separating wrap accounts--and the

communications equipment to interface electronically with an

intermediary on both search date and record date. In addition, the

compliance department of the firm is required to ensure that the firm

fully complies with Exchange and Commission rules since subcontracting

does not relieve a firm of its legal responsibilities.

To simplify the administrative difficulties that would result if

each issuer had to pay many brokers, ADP has developed a ``single

invoice'' procedure for all of the brokers with whom they have

subcontracted. Under this procedure, ADP bills issuers on behalf of

literally hundreds of brokers and banks. ADP remits to their clients

the amounts specified in their contracts, which the firms will retain

to cover their own costs.

The Exchange believes that this billing procedure does not affect

issuer costs. In this regard, if the brokers billed issuers directly,

the issuers would pay the same amount, but to several brokers, rather

than to a central data processor. In the Exchange's view, there is no

economic difference in the brokerage firms retaining part of the costs

paid by the issuers or such firms receiving the same amount paid by ADP

through the single invoice system. This billing process also is

consistent with other types of outsourcing transactions. Indeed,

issuers benefit from this procedure since they are able to pay a single

processor, rather than multiple brokerage firms.

2. Statutory Basis

The basis under the Act for the proposed rule change is the

requirement under Section 6(b)(5) that an exchange have rules that are

designed to prevent fraudulent and manipulative acts and practices, to

promote just and equitable principles of trade, to foster cooperation

and coordination with persons engaged in regulating, clearing,

settling, processing information with respect to, and facilitating

transactions in securities, to remove impediments to and perfect the

mechanism of a free and open market and a national market system, and,

in general, to protect investors and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will

impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed

Rule Change Received From Members, Participants, or Others

Summary of the Comment Letters

The Exchange solicited comments on the proposed rule change from

listed companies, member firms and other industry organizations

involved in the proxy solicitation process pursuant to a Request for

Comment dated September 18, 1996. The Exchange received 261 comments

letters.\7\ While it is difficult to categorize some of the letters,

the

[[Page 68086]]

Exchange has concluded that 181 letters generally supported the

proposal and 80 letters opposed the proposal. Of the 181 letters

supporting the proposal, 52 letters also expressed reservations about

certain aspects of the proposal.

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\7\ The Exchange informally circulated a draft of the Request

for Comment on July 19, 1996. That draft was substantially similar

to the final proposal, and a number of commentators responded only

to the July 19th request for comments. Thus, the 261 letters include

those letters received in response to the July draft.

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Those letters supporting the proposal believed that it would lead

to cost reductions, increased technological efficiencies and

consolidation of services. These commentators saw the savings from the

fee reductions more than compensating for the cost of the new nominee

fee. Even some companies facing increased fees in the short term

supported the proposal, believing that they would reap long-term gains

through decreases in internal printing costs and increased efficiencies

in the years ahead. Some commentators also thought that the proposal

could result in an increased voting response in the proxy process.

In addition, supporters believed that the new fee structure would

more equitably distribute the costs of the proxy process among market

participants. To the extent that these commentators had reservations

regarding the proposal, they noted that any difficulties could be

addressed following the end of the three-year pilot period.

Commentators objecting to the proposal focused primarily on the new

nominee fee. The main objection to that fee was that it would result in

increased costs, especially to smaller issuers. There are suggestions

that the Exchange (i) abandon the nominee fee, (i) adopt tiered nominee

fees, with small issuers not being subject to the full $20 fee, and

(iii) restructure the nominee fee so that it would be progressive,

based on how many shareholder accounts an issuer has.

Some commentators asked for a more precise definition of

``nominee.'' Others expressed the general view that brokers should be

responsible for the costs of communicating with street name holders

(and some recommended that the Exchange not establish guidelines at all

in this area). Some commentators also objected to the proposed

incentive fees. These commentators argued that the proposed fee was

unrelated to any additional service provided by an intermediary, and

that the intermediaries should be expected to provide for additional

efficiencies without the need for further reimbursement.

As to the letters with mixed opinions, some commentators said they

needed more time to review the proposal. Others found it difficult to

estimate the proposed savings or thought that any possible savings

would be minimal. A number of commentators supported the overall thrust

of the proposals, but questioned certain aspects of it, such as

suggesting that it was counterproductive to authorize the nominee fee

while lowering fees generally. Some commentators supported the

proposal, but urged that the Exchange lower fees even further. Finally,

a number of commentators made specific suggestions on how to structure

the review of the pilot program.

The Exchange's Response to the Comment Letters

Well over half the comment letters expressed support for the

proposals. The Exchange believes that this indicates that the proposal

accurately balances the interests of the issuers, broker-dealers,

intermediaries and investors. In particular, many commentors noted that

the proposal would provide a more rational fee structure and would

encourage the use of enhanced technology to facilitate the shareholder

communication and voting process. As discussed, even a number of

issuers whose proxy solicitation costs would increase supported the

proposal, noting that the new fee structure likely would yield long-

term savings.

Those commentators who voiced opposition to the proposed rule

change focused almost entirely on the possibility of increased costs,

especially through the nominee fee. Many of these commentators argued

that the fee was unfair and that it covered services that already were

being provided. Some of these commentators believed that the proposed

nominee fee would benefit large issuers at the expense of smaller

issuers.

In response, the Exchange first notes that this fee is cost-related

and is intended to compensate intermediaries for the services they

provide. As discussed above, intermediaries conduct searches for

determining how many sets of material to mail, coordinate mailings

(often through the use of bulk mail) and help provide preliminary

voting information. The proposed rule change attempts to establish a

more accurate fee schedule by isolating these services and establishing

a separate fee for recovering the costs of providing these services. By

charging separately for these discreet services, the Exchange is able

to lower the general fees for mailing materials.

The Exchange also believes that the commentators who objected to

the nominee fee do not fully recognize the cost savings that will

result under the new fee schedule. These commentators simply added the

total fees that they would have to reimburse intermediaries under the

fee schedule, but failed to consider the other cost savings,

particularly ``out of pocket savings,'' that the Exchange believes they

are likely to achieve. In addition, for example, the new incentive fees

are likely to result in fewer mailings, thus decreasing printing and

mailing costs. Similarly, the fee structure encourages the use of new

technology, especially with respect to voting, and thus should result

in a more efficient proxy system.

As to the other objections that commentators raised, the Exchange

notes:

Definition of nominee: The Exchange believes that the term

``nominee'' is well-known in the securities industry and will not give

rise to interpretive issues. The Exchange's request for comment made

clear that a ``nominee'' is a name appearing on a list of record

holders who, in fact, is acting for someone else. They are

``participants'' of the Depository Trust Company, such as self-clearing

banks, brokers and other financial institutions.

Need for reimbursement guidelines: The Exchange has

provided fee reimbursement guidelines since 1938 to provide a service

to its constituents and to help ensure that investors receive proxy and

other information from issuers on a timely basis. The system has worked

well over the years, and the current process of reviewing the fees

indicates that the Exchange continues to play a critical role in

facilitating (i) the flow of information from issuers to shareholders

and (ii) the flow of votes from shareholders to issuers.

Incentive fees: A number of commentators questioned the

adoption of incentive fees as a means to reduce mailings. These

commentators believed that intermediaries already should be taking

steps to reduce costs. However, the Exchange states that the current

fee structure provides little incentive for intermediaries to limit the

number of mailings to shareholders. This results in increases in both

mailing costs and, more significantly, printing costs, for issuers. The

incentive fee could have a dramatic effect in encouraging

intermediaries to eliminate multiple mailings.

Non-U.S. issuers: Non-U.S. issuers are exempt from most of

the Commission's proxy rules pursuant to Rule 3a12-3 under the Act.

Nevertheless, non-U.S. issuers generally do provide U.S. shareholders

with proxy and related information and seek the vote of their U.S.

holders. Thus, broker-dealers and other intermediaries face the same

reimbursement issues with non-U.S. companies as they do with U.S.

companies. The Exchange has not been presented with any compelling

[[Page 68087]]

reasons to treat these classes of issuers differently.

Finally, the Exchange recognizes that it is impossible to establish

a final fee structure without actual market experience. Thus, the

Exchange is proposing the new fee structure for a three-year pilot

term. An industry Committee consisting of representatives of the

Exchange and all the major constituency groups affected by the new fee

structure will monitor the effect of the new fees throughout the pilot.

The Committee will be able to propose changes as needed and will make

final recommendations to the Exchange at the conclusion of the pilot

period.

III. Date of Effectiveness of the Proposed Rule Change and Timing for

Commission Action

Within 35 days of the publication of this notice in the Federal

Register or within such longer period (i) as the Commission may

designate up to 90 days of such date if it finds such longer period to

be appropriate and publishes its reasons for so finding or (ii) as to

which the self-regulatory organization consents, the Commission will:

(A) by order approve the proposed rule change, or

(B) institute proceedings to determine whether the proposed rule

change should be disapproved.

IV. Solicitation of Comments

Interested persons as invited to submit written data, views, and

arguments concerning the foregoing. Commenters are invited specifically

to provide information that will assist the Commission in assessing

whether each of the various elements of the proposed fee structure--the

mailing reimbursement fees for non-contested and contested

solicitations, respectively, the nominee fee, and the ``householding''

incentive fee--considered separately and/or as a whole, are consistent

with: (1) issuers' obligation under Rule 14a-13(a)(5) of the Act to

reimburse broker-dealers, banks, and other nominees for the

``reasonable expenses'' they incur in mailing proxy soliciting

materials and annual reports to beneficial holders of such issuers'

voting securities and/or (2) broker-dealers' ability under Rule 14b-

1(c)(2) of the Act not to deliver proxy soliciting materials and annual

reports pursuant to Rule 14b-1(b)(2) of the Act, or provide NOBO

information under Rule 14b-1(b)(3) of the Act absent a particular

issuer's ``assurance of reimbursement of * * * reasonable expenses,

both direct and indirect.'' Should such ``reasonable expenses'' within

the meaning of any or all of these Commission rules be construed to

encompass an intermediary's costs of: (1) coordinating an issuer's

proxy mailings to multiple nominees and/or (2) operating an electronic

proxy voting system whereby street-name customers of broker-dealer

clients may instruct the intermediary on how to vote the securities in

which they hold a beneficial ownership interest? Should the

determination of ``reasonableness'' with respect to any of the

foregoing fees vary with the size of the issuer, whether measured in

terms of its total market capitalization or public float, or any other

criterion?

Should this reasonableness determination take into account any fee-

sharing arrangements between a intermediary and its broker dealer

clients? In this connection, to what extent should such arrangements

reflect actual allocation of costs between an intermediary and such

clients? In addressing this question, commenters should attempt to

quantify to the extent possible the costs that continue to be borne by

those broker-dealers that outsource proxy processing and/or voting

obligations to an intermediary, and the relationship of such costs to

fulfillment of obligations under Rule 14b-1 of the Act and/or Exchange

Rules.

Moreover, the Commission solicits comment on whether an independent

audit during the three-year pilot period would be helpful in assessing

the reasonableness of the costs passed through to issuers. Finally, the

Commission also solicits comment on whether the proposed NYSE nominee

fee and incentive fee should be deemed to apply to reimbursement by

non-NYSE issuers to NYSE member firms.

In view of the extensive comments requested, the Commission is

providing a 45-day comment period. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

Copies of the submission, all submission, all subsequent amendments,

all written statements with respect to the proposed rule change that

are filed with the Commission, and all written communications relating

to the proposed rule change between the Commission and any person,

other than those that may be withheld from the public in accordance

with the provisions of 5 U.S.C. Sec. 552, will be available for

inspection and copying at the Commission's Public Reference Section,

450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such filing

will also be available for inspection and copying at the principal

office of the Exchange. All submissions should refer to File No. SR-

NYSE-96-36 and should be submitted by [insert date 45 days from date of

publication].

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-32717 Filed 12-24-96; 8:45 am]

BILLING CODE 8010-01-M